It’s Now More Rewarding Than Ever…
Corporate Philanthropy Has Jumped Sharply
“The wealthiest Americans are making a major difference in solving public problems such as health and education through philanthropy. More than ever, individuals are funding solutions, not stop-gaps. What sparked such a sharp shift? The free markets.
The past two decades have spawned a new wave of billionaires who have taken up the banner of social justice, sparking a golden age of philanthropy not seen since the days of Rockefeller, Carnegie and Morgan.” Steve Forbes, Forbes Magazine
Make no mistake…Personal fulfillment is still, by far, the number one reason ultra-high-net-worth individuals are passionate about philanthropy, but that doesn’t mean they aren’t also shrewd in their dealings. Sure, according to a recent survey by Wealth-X, “they give based on the psychology of how they feel” but more and more wealthy individuals are discovering how to give smart, by fully utilizing existing tax law to create win-win transactions with federally recognized nonprofits. This way, philanthropists can actually provide and receive more from their philanthropy.
In addition to finding a worthy cause, high net worth individuals want to see transparency with the nonprofit and something called ROM (Return on Mission). The ROM measures the impact of a charitable gift on the mission itself. The nonprofits we work with have a strong mission and proven success at fulfilling their mission.
The Perfect Trifecta
However, another emerging trend among not only high net worth individuals but also corporate donors is the ROD or Return on Donation. That’s the trifecta of personal fulfillment, favorable publicity and better than expected tax savings which can come from Bargain Sale transactions.
The philanthropic satisfaction is not to be discounted, but instead of doing straight cash donations and getting standard charitable deductions, why not work with a nonprofit who will actually pay you for your underutilized real estate, and turn it into cash to fund their charitable mission while you get sizable charitable tax deductions in the process? Plus, they often celebrate your corporate generosity in a way that may offset any potential negatives that sometimes emerge from an unwelcome plant closing or office relocation.
We represent nonprofits prepared to do just that for the right real estate opportunity. And by utilizing up-to-date appraisal guidelines set forth in IRC 170 and IRS Publication 561, the corporate donor may find themselves with more cash in hand from a Bargain Sale than they would have in a traditional sale.
With an estimated nearly $40 trillion of privately held real estate in the U.S., of which approximately two-thirds is equity, there is tremendous opportunity for charitable disposition of real estate that will not only enable a financial boon to nonprofits but simultaneous to that, facilitate the largest generational wealth shift in history, if done correctly.
And that’s where Welfont comes in…Our agents are trained specialists in relevant tax rules pursuant to the disposition of both nonperforming and performing real estate assets. We can provide very thorough analysis of your available real estate holdings and match those up to one of our nonprofit clients seeking exactly what you have. Should it turn out that you have a property that matches our client’s profile, you can expect to see an offer forthcoming. Being that it will be from a federally recognized nonprofit, there are three important facts you should know about their offer. They are…
1. Not a Standard Donation
Unlike a straight donation, a IRS Section 170 Bargain Sale typically involves a sizable cash component at closing. It’s not uncommon for us to represent a nonprofit client bringing six or even seven figure cash amounts to the closing table. But it gets better…There is also a substantial tax benefit to be reaped within as little as 30 days but no longer than six years. Combining these two amounts often yields more cash to the seller than they were hoping for in a traditional sale. Brokers love us because their commission is protected and our closing rate is high due to few contingencies.
2. Avoid Cap Gains and Recapture Taxes
This one is huge… IRS rules allow you to depreciate real estate over time and thereby secure a valuable tax benefit. However, if you sell that property for more than the adjusted basis, everything you saved in taxes through depreciation will be taxed. You are required to pay it back. Everyone knows that. BUT…if you do a Bargain Sale, IRS rules allow the seller to keep their previous tax savings AND deduct the charitable portion of the transaction at full market value, without the tax consequence! That means you get to write it off twice! This is unique to commercially owned real estate. There is a potential tax due on the cash portion of the sale, but even that is modest. (See IRS Publication 544, page 4, column 1 for details)
IRS rules require the real estate to be valued at the full and fair market value, which they define as the price a willing buyer and seller can agree on with neither being under any compulsion to act and both having reasonable knowledge of relevant facts.
They further assume it will be valued at its highest and best use and use a weighted average of market price (excluding distressed sales), income valuation and replacement cost. This valuation performed by an independent, 3rd party, typically MAI-certified appraiser, often comes in higher than the cash amount a seller is willing to settle for to get the depreciating asset with high carrying costs off their books. Sellers are not required to sell their property at fair market value but they are entitled to deduct the full and fair market value (less any cash paid) from their taxable income.
“The Bargain Sale has provided these corporations great tangible and intangible benefits, by getting an immediate and significant cash benefit, eliminating expensive carrying costs, giving back to the community and having a great PR campaign, while getting rid of a management headache so these corporations focus on what they do best.”Dennis Walsh, Publisher
The combination of all these factors can make a charitable bargain sale very rewarding for the seller. As the nation’s leading authority on Bargain Sales for acquiring commercial real estate, Welfont has helped numerous individuals and corporations divest themselves of commercial real estate assets in a profitable manner while simultaneously and purposefully engaging in meaningful philanthropy.
Welfont works with a growing list of Federally recognized nonprofit entities who become the hands of corporate America extended to those in need. These nonprofit entities bring cash offers combined with substantial tax benefits to owners of commercial real estate.
Of the approximately $200 million of Bargain Sale transactions our clients have done, every single deal was the best offer on the table, even beating out competitive bids on occasion. Contact us directly to see if a Bargain Sale is right for you.